To all Clients
When the coronavirus was discovered in China, AgMarket.Net recorded a segment that talked about the true threat to our economies. Based on a meeting I attended during the Reagan administration it was determined that a disruption in transportation would be the true threat of any pandemic to our economy. The reason is that the US grocery logistics have about a three day supply before shelves would empty out. The threat to social unrest and government stability all lies in keeping people supplied, comfortable, content. Below are pictures of Sam’s club’s last night. This is real.
Last night I went to Costco but the vehicle line just to get into the parking lot was nearly to the highway. So I went to Sam’s and this is what I found
The gentleman standing in line with me, was telling me his kids are home now as the school is closed. His cart full of food and his concerns were very real. How are they going to take care of these kids when they both have jobs? Could they leave their teenage kids unattended? And the amount of food they are already consuming is much more than normal. He was definitely concerned.
We are seeing pictures showing up on social media from all over the country. Here is one from North Dakota. From @dubyadirt Fargo ND
I’m going to paint a very real picture. If there is a disruption in transportation and these supply lines are not replenished, things will get ugly. Retail food prices will skyrocket. People have to eat. These prices get reported every week to the government . This data goes into the CPI or consumer price index report otherwise known as the inflation report. Investors managing billions of dollars in New York have lost huge money in stocks. The stock market will not recover the 30% loss within the next year. It may only make 2 to 6% a year for the next few years. Thus these traders managing money will have to look for other investment opportunities. When they get the CPI reports and see food prices going through the roof, they will start to look at agricultural commodities. With Ag commodities pressing into 20 year lows, we suspect money will move into the market and buy value and a wide discrepancy between wholesale and retail price.
So when to buy Ag commodities? this is an impossible question to answer . Maybe it was last night as these pictures were hitting social media. But I want you to think about this: if the packing plant shuts down because have a sick employee, the livestock market may tank like it did during the Tyson fire. Maybe the market is already anticipating this and it will be a buy the rumor sell the fact. But if that happens, we would expect livestock markets to tank while the prices in grocery stores depending on that supply line run completely short and real retail prices move even further North – creating a massive incentive for funds to buy wholesale depressed markets. Thus the timing on agricultural commodities might be right now due to the fact that social media is reporting what you see above in these pictures. However it may get worse in the net within the next 2 weeks if packing plants close. That would be the real time to buy . The message here his simple. Recognize that this is ultimately a huge opportunity to buy emotionally depressed markets that might have a product value spread that is at a record premium. But caution is advised. If you buy now as the charts maybe suggesting a low is in, make sure you have equity to withstand one more emotional price decline based on a situation like packer plant closing…. and then buy all you can.
Timing – no one can say what optimal timing is. It took 36 days for China to go from 2000 people infected to 80,000 and begin to flatten out. They had no warning to prepare. In fact it probably took them a weeks to figure out what was going on. We have been preparing And hopefully US numbers will peak much sooner and with less people than China. But this 36 day window gives us some idea as to our worst case scenario. Markets typically anticipate things about halfway to the end of the timeline. Thus it would make sense that emotion could continue to run high for about another 14 days or two weeks. Using this as our only indication for guidance, within the next 2 weeks you should be looking for peak buying opportunities.
What would make sense to buy? Cattle, hogs and poultry are likely the most obvious to a fund manager looking at these pictures. The main ingredient to all food is corn and meal. Other commodities we are recommending are crude oil or heating oil (diesel). All of these are leaning into 20 year lows and our have good value. As the economies recover as they are in China industry will work diligently to refill pipeline supplies. Economic activity will be very strong. Government and central banks handing out money like candy will lend itself to additional inflation. The CPI report has a secondary report called Core CPI. This report removes food and fuel so that economists have a report that does not include the most inelastic and essential commodities of our lives . We must eat and we must drive our car to get to work regardless of price . That is why food and fuel is the best form of ownership to hedge against inflation
We are asking for your help to keep our entire client group informed of what is happening in grocery stores in your area . Send us texts with pictures. We will keep you informed as to the stability or instability of the food chain and what prices are doing. We also ask that you seriously evaluate your current positions and have a plan for what to do over the next few weeks. The biggest opportunities in my 40 year career have always occurred in the worst of situations. There is no doubt that this is a crisis. Sad to say but our job is to work together and make money out of it. My guess is within 1-2 years we will be normally priced. So getting in on extremes when the world is ending (like Chernobyl, mad cow,…) is a way to do that.
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